Your Taxes.

A Lesson In Deductible Education Expenses

You May Be Eligible If The Courses Help You Maintain Or Improve Skills Needed For Your Present Job

September 24, 1996|By Gary Klott, Tribune Media Services.

Both President Clinton and GOP presidential nominee Bob Dole have proposed major new tax breaks to make college more affordable. But many individuals will find that they are already eligible to deduct the cost of going to college.

In fact, anyone who works for a living may be eligible. As a general rule, the tax law allows workers to deduct courses that promise to help them in their current jobs.

Engineers can deduct courses that will bring them up to date with the latest technology. Teachers can turn to the tax code to subsidize their continuing education requirements. And executives and managers may even be able to write off the cost of obtaining an MBA.

As is true with most tax breaks, however, numerous restrictions apply to education deductions. But given today's high cost of college and the sizable financial assistance that the tax code may provide, it's worth taking the time to wade through the eligibility guidelines.

If you do qualify, you can write off your tuition, books, supplies, lab fees and certain transportation expenses.

Under current law, education deductions are available only to those who are already in the work force. That rules out the vast majority of students who are going to college to prepare for their first job.

If you're employed, you don't have free rein to deduct any course in the college catalog. Only courses that are relevant to your current job are deductible. So if you're an engineer, you're not going to be able to deduct courses in French literature.

Specifically, the tax law requires that the courses help you maintain or improve skills needed for your present job. Or the courses must be required by your employer or by law to keep your present job, position or salary.

Thus, physicians, attorneys and other professionals who take refresher courses to keep up with the latest developments in their field are eligible to deduct the cost. Concert musicians can deduct the cost of music lessons, according to one Tax Court ruling. The court also allowed a high-school physical education instructor to deduct the cost of handball lessons. In another case, a deputy district attorney was allowed to deduct the cost of Spanish language lessons because they enabled him to interview Spanish-speaking witnesses and victims.

Teachers who are subject to continuing education requirements are eligible to deduct their expenses because the courses are mandated by their employer or by law to keep their jobs.

Even if you can prove a course will improve skills in your current job or that your boss ordered you to take it, there are a couple of restrictions that can ruin your chances for a deductible education.

The first is that if the courses are needed to meet the minimum requirements for your job, the costs aren't deductible. For example, if you land a job as a secretary that requires taking shorthand but you only know longhand, you wouldn't be able to deduct a stenography course since that's a minimum educational requirement for the job.

The second restriction is that courses that are part of a program of study that can qualify you for a new trade or occupation aren't deductible.

Even if you insist you have no plans to change careers, the courts have taken the view that your intentions could change in the future.

Whether an MBA constitutes preparation for a new career depends on your current job duties. In one case, the Tax Court allowed an engineer whose job involved managerial duties to deduct the cost of his MBA degree because the schooling improved skills in his current job as a manager. But the court disallowed deductions for another engineer who didn't have managerial duties.

The IRS has sometimes taken a very broad view of what constitutes a new career. For example, the IRS disallowed education deductions for a farmer who took a welding course to help repair and maintain equipment on his family's farm. The IRS contended the welding course qualified the farmer for a new career as a welder. But the Tax Court sided with the farmer, reasoning that welding is a necessary part of operating a farm.

Recently, the IRS issued a ruling that an elementary school music teacher couldn't deduct the cost of obtaining a doctorate in music because it qualified her for her new job as a college professor. The IRS contended that teaching college is a different profession from elementary or secondary teaching.

Nevertheless, the IRS does consider teaching and related duties at the pre-college level as the same general kind of work. As a result, deductions are allowed for courses needed for a teacher to switch from elementary to high school teaching, to teach a different subject or to become a school principal.

For those who don't qualify for education deductions under current law, the Clinton and Dole tax plans hold hope for tax relief next year.

Educational tax breaks are a centerpiece of the Clinton tax plan. His plan would allow lower- and middle-income taxpayers to deduct up to $10,000 a year in college tuition and would give students tax credits of $1,500 a year for the first two years of college. Under the Dole plan, lower- and middle-income taxpayers would be allowed to deduct interest on student loans.

Even employees who qualify for education deductions under current law may find the candidates' tax breaks more rewarding. One reason is that the proposed tax breaks could be claimed regardless of whether you itemize deductions. Under current law, education deductions are considered "miscellaneous" itemized expenses, which can be claimed only if you itemize and are deductible only to the extent they exceed 2 percent of your adjusted gross income.